International investment by multinational companies and sovereign wealth funds, or SWFs, has great potential to provide much-needed capital to help developing countries grow sustainably, UNCTAD experts say.
The third UNCTAD World Investment Forum, taking place in Doha from 20 to 23 April, and held in conjunction with the UNCTAD XIII quadrennial conference, will explore the government policies and strategies needed for capturing that potential. Participating will be the presidents and chief executives of Nestlé, Total, Novozymes, McKinsey, Insud Group (Chemo Group) and the International Chamber of Commerce. Also expected are senior vice-presidents from firms such as China Mobile, Vale, Sistema and Alstom. They will be joined by Heads of State and senior government ministers from UNCTAD’s 194 member States, as well as by senior representatives of international organizations.
While the recent recession in many economies led to the freezing or reduction of official aid flows to poorer countries, multinational companies have conversely been sitting on sizable cash reserves. Last year alone, they invested $1.6 trillion to expand their operations abroad. That actually surpassed the pre-crisis average (2005–2007) for international investment flows.
In addition, large government sovereign wealth funds are estimated to account for total assets of $4 to $5 trillion. A sizable proportion of such investment comes from large emerging economies in the global South. Joining the discussion in Doha will be representatives of some of the world’s biggest SWFs, such as the Qatar Investment Authority and the Gulf Investment Corporation (Kuwait). While the bulk of their resources has so far been invested in Treasury bonds or used in the strategic acquisition of companies, land or infrastructure, the funds could also be used to support greenfield investments in the developing world.
Investment from these sources has the potential to be used in productive and sustainable ways to contribute to the development of poorer countries, UNCTAD economists contend. Indeed, international investors see growing opportunities in developing and emerging countries: Last year, for the first time, developing and transition economies received more than 50 per cent of total international investment flows. However, it should be noted that this investment was not evenly distributed among regions. Africa, a continent that faces massive infrastructure and other financing needs, saw a further decline in 2011 in its share of global investment flows, and investment flows to the least developed countries stagnated. It is important for these countries and the global economy that governments and businesses reverse that trend.
Large multinational companies and SWFs would be well placed to contribute to the financing of the big infrastructure, agricultural and other projects needed by developing countries and have the capacity to invest on a scale that can have a significant impact on the employment crisis in the world’s poorer nations. The creation of decent, well-paid jobs is the surest route out of poverty, and participants at this year’s World Investment Forum will discuss how a strategic combination of public policies and private initiatives can direct more investment into projects that can lead to expanded employment.
The role of government in setting appropriate policy and legal environments is key to maximizing the development contribution of investment. Merely attracting international investment is not enough; public policy has to ensure that capital is converted into jobs and targeted at productive sectors, thereby serving the goal of poverty alleviation and long-term structural change.
At the international level, policy and legal issues also remain a challenge. Here, the World Investment Forum is currently one of the most important international platforms for addressing governance and regulatory challenges in the investment field. Such discussion will be instrumental for anticipating possible downside risks in the global economy and their impact on investment for sustainable development.
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